THE appeal by Stock Brokers Zambia Limited (SBZL) to the International Finance Corporation (IFC) to consider investing in venture capital funds to propel the supply of listings at the Lusaka Stock Exchange (LuSE) deserves serious attention.
We agree with SBZL managing director Charles Mate’s statement that the private sector must play a direct role in growing Zambia’s stunted capital market.
Venture capital funds are cost-effective sources of capital financing, which could boost the country’s private asset portfolio and contribute to the gross domestic product (GDP).
This can help small and medium-scale enterprises which have difficulties in obtaining financing from banks and other lending institutions because of exploitative interest rates.
IFC should study Mr Mate’s counsel and seriously look at ways of going back to the market and helping the local bourse grow to the next level in 20 years’ time.
“IFC should consider the possibility of working with institutional investors and set up a private equity fund which will act as an engine to encourage these companies because the exit route then becomes clear to use the stock exchange,” he said in a story we published on page seven of our Monday edition.
Mr Mate lamented the slow pace at which Zambia’s capital market is growing.
As he said, there is need to increase the number of companies listing on LuSE through the provision of low-cost capital financing to businesses to give them the capacity to list.
Meanwood Venture Capital, which was incorporated on May 30, 2013, has already set the pace by setting up Zambia’s first private-sector venture capital fund with an initial investment of US$10 million (K54 million).
The fund is aimed at providing low-cost financing to SMEs owned by Zambians within and outside the country.
The initiative, aimed at boosting the small and medium-scale businesses (SMEs), is expected to create hundreds of jobs for citizens and therefore help reduce poverty in the country. But we need more players.
There is need for big players such as the IFC to come on board and pump more resources into the capital market to give it the boost it desperately needs.
Venture capital funding is one of the ways of achieving national economic growth. It is a powerful vehicle for job creation and poverty alleviation.
South Korea, for example, has the robust Job Creation Fund, which is funded by KoFC (Korea Finance Corporation), to invest in SMEs and venture companies in a growth stage with high job-creation potential.
Managed by the Korea Venture Investment Corporation (KVIC), the fund is organised in a form of KVF (Korea Venture Fund) based on Special Measures for Promotion of Venture Businesses Act.
“The Job Creation Fund indirectly invests in SMEs and venture companies through partnership funds,” says KVIC on its website.
In the United States, there were 462 active venture capital firms in 2010. Looking at the universe of US venture capital firms as those raising money in any of the last eight years, the 2010 count was 791, managing a total of US$176.7 billion in committed capital.
According to the National Venture Capital Association, venture capital activity has a significant impact on the US and global economies.
“Venture capital is a catalyst for job creation, innovation, technology advancement, international competitiveness and increased tax revenues. According to the 2011 Venture Impact Study, produced by IHS Global Insight, originally venture-backed companies accounted for 11.87 million jobs and over US$3.1 trillion in revenue in the United States [based on 2010 data],” the association says.
As can be seen, the potential of venture capital funds to lift thousands of jobless young people out of the abyss of poverty and inject fresh capital into the national economy cannot be doubted.
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